DALLAS (S&P GlobalRatings) - S&P Global Ratings assigned its 'BBB' rating to the Chesapeake Bay Bridge and Tunnel District, Va.'s $354 million series 2016 first tier toll revenue bonds. At the same time, S&P Global Ratings assigned its 'BBB' long-term rating to the district's $355 million subordinate Transportation Infrastructure Finance and Innovation Act (TIFIA) bonds. The outlook is stable.  "The ratings reflect our view of the facility's strong demand characteristics, including a service area that provides a good base level of demand that has historically produced stable traffic and revenue growth despite its single-asset nature and high toll rates," said S&P Global Ratings credit analyst Anita Pancholy.  The rating reflects our view of the following credit weaknesses: 
  • A significant debt burden with approximately $756.4 million from the proposed obligations, which could pressure debt service coverage if certain traffic levels are not achieved;
  • A moderately aggressive repayment schedule that relies on steady traffic and increased toll rates to meet escalating requirements;
  • The potential for cost overruns, given the complexity and specialization of the project; 
  • Toll rates that we consider high, at $15 each way for passenger vehicles during peak hours, and that are expected to increase over the forecast period; 
  • The single asset nature of the revenue stream, rather than a system of toll facilities, that faces competition from free alternatives particularly during off-peak periods. 
Offsetting credit strengths, in our opinion, are: 
  • Strong existing demand for the facility, which has been tolled, and is used mainly by passenger cars commuting to and from the Hampton Roads region to the eastern shore of Virginia;
  • Stable growth in traffic and revenues historically, as seen in average annual growth rates of 1.8% and 2.9%, respectively, since 1998;
  • Good debt service coverage under various scenarios; all-in debt service coverage including repayment on TIFIA and the Virginia Transportation Infrastructure Bank (VTIB) is no lower than 1.23x if base-case net toll revenues are reduced by 25% in each year throughout the forecast period;
  • A design-build lump sum price and contract that has been awarded and executed with design, permitting, construction of the tunnel, liquidated damages, and contingency expenses with firms that are experienced working on projects of this complexity; 
  • No additional debt needs in the long term because recently completed maintenance limits the district's debt needs for this project.
The stable outlook reflects our expectation that construction will proceed as scheduled and will experience limited cost overruns. The outlook also reflects our assessment of the district's stable operating profile, which we expect will support debt service coverage at or near forecast levels. We are unlikely to raise the rating during the next two years, given the ascending repayment schedule and as construction is likely to be ongoing beyond the outlook horizon. We could lowerthe rating if the project experiences cost overruns, delays, or any other issue that negatively affects debt service coverage.  Certain terms usedin this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.globalcreditportal.com and at www.spcapitaliq.com. All ratings affected by this rating action can be found on the S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located  in the left column.